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Thursday, June 26, 2008

Alignment of Interests

In yesterday’s post, I showed that the interests of homeowners and the real estate agents who work for them are poorly-aligned. The concept of alignment of interests is an important one for understanding why people do the things they do. It can also be useful for predicting how others will surprise you or disappoint you, or maybe try to take advantage of you financially.

I used to play on a softball team that was sponsored by a sports restaurant/bar. We were young and took our commitment to our sponsor seriously. We would sometimes show up after a game with more than 20 people including players, friends, and family. We were developing a great relationship with this sports bar, or so I thought.

After the third or fourth time we arrived at this sports bar on a Monday or Wednesday around 9:30 pm, it became clear that they weren’t very happy to see us. They would tell us we couldn’t sit in one section or another, and would try to hustle us out quickly. We weren’t rowdy, and the place was never particularly full. They just didn’t seem to want our money.

It took me quite a while to figure out what was going on. This sports bar was part of a chain, and all the people working there were paid by the hour. The owners who cared the most about the success of the business were rarely there. This bar wasn’t doing very well, and there was very little business through the week after about 8:00 pm. The workers were used to a quiet evening shift, and we were messing that up!

Let’s look at this from the point of view of Will, one of the workers at the bar. When we showed up, Will got pulled away from socializing with the other workers to do extra work, and he would end up leaving his shift later than normal. As for the tip that we would leave, these were pooled across the employees, and his share of our tip would be very small. Overall, our presence made Will’s life worse.

Of course the owners of the bar would have wanted five groups like ours to show up every night. This shows that the owners and workers did not have their interests aligned. The workers were happiest when the bar just limped along without ever being too busy.

I’m guessing that the owners of the bar were not aware of what was going on. If they were, they could have tried to do something about it. They could have paid the workers more when business was good, or they could have monitored the bar more carefully and fired the workers who didn’t encourage business. Either of these solutions would have more closely aligned the interests of the owners and workers.

By carefully looking at what is best for each party in any endeavour, you can check how well their interests are aligned, and predict whether they will tend to work towards a common goal, or will work against each other.